ANALYSIS: US gas exports clear hurdle with new study

Shipping some of
the newly abundant US natural gas abroad would benefit the
nation's economy more than using it to fuel industry at home,
according to a long-awaited government study that has the
potential to reshape the global energy market.

The endorsement could turn the tide in a politically
sensitive issue. Gas producers are eager to export more, while
big consumers including manufacturers and chemical companies
are leery that exports could raise domestic prices. Environmental groups, meanwhile,
fear that allowing exports would encourage more natural-gas
production.

The administration had said the study would be central to
its decision on approving exports. It analyzed more than a
dozen scenarios for US production and exports of natural gas.
It found that "across all these scenarios, the US was projected to gain net economic
benefits" from liquefying and then exporting natural gas.

The looming prospect of the US becoming a major exporter of
natural gas underscores how the energy revolution is
transforming the nation's economic prospects. Just a few years
ago, many energy companies were planning to build facilities to import liquefied
natural gas into the US.

But thanks to technological advances, combining hydraulic
fracturing and horizontal drilling, the US has in a short time
become a gas-producing powerhouse. The glut of cheap gas has
helped underpin a revival in manufacturing and helped lower
electricity costs for consumers.

Most of the companies seeking permission to liquefy and then
ship gas overseas have been awaiting the report. The Department
of Energy had said it wouldn't issue permits for exports to
countries lacking a free-trade agreement with the US until the
study was done and it could be assured that exports were in the
national interest, as required by law.

One
export terminal - Sabine Pass Liquefaction in Louisiana - has
already received Department of Energy approval. Fifteen other
projects, which could export as much
as 21.5 billion cubic feet/day of gas, are awaiting approval.
That is roughly one-third of total US production, but analysts
doubt more than a handful of the terminals will be built
because they cost some $5 billion or more apiece.

One potential exporter is the largest US gas producer,
ExxonMobil, which is teaming up with Qatar Petroleum for a
facility near Port Arthur, Texas. The partners are proposing to
invest some $10 billion to turn a gas-import terminal into one
that can export. A spokesman for Exxon Mobil said, "LNG exports
will help increase economic growth, create jobs and add to
government tax revenues."

Already, other nations including Australia are stepping up
their capacity to export natural gas. That opens the prospect
that natural gas could become more of a globally traded
commodity like crude oil. Currently, the difficulty of shipping
natural gas means that prices in Asia and Europe are several times the US
price.

The rise of the natural-gas trade has geopolitical
consequences. Pipelines from Russia now supply a big chunk of
the natural gas to Western Europe, but alternative sources
could undercut Moscow's sway. In Asia, the US can bolster
allies such as Japan and South Korea by helping lessen their
dependence on gas imports from unstable regions.

The Energy Information Administration estimated Wednesday
that the US could export about four billion cubic feet/day
by 2027, or about 6.6% of the country's current natural-gas
consumption.

The
report was expected earlier this year, but the Department of
Energy delayed it twice. For President Barack Obama, gas
exports could play into his embrace of rising US production and
help achieve foreign-policy goals. But there is also
political risk because of criticism from environmental groups, which have
been among his strongest supporters.

The Department of Energy said on Wednesday that it would
review the economic impact study as well as public comments
"prior to making final determinations" on approving LNG-export
applications. It said it would study each application on a
case-by-case basis.

Exports remain a contentious issue in Washington because of
the potential impact on big domestic users. Unlike in some
other parts of the world, US natural-gas prices aren't linked
to oil prices, which have been generally high in recent years
and stood Wednesday near $88 a barrel in the US.

"Let's not let the oil price bleed back into the domestic
gas market," said Andrew Liveris, chief executive of Dow
Chemical, this week. Dow is one of the largest consumers of US
natural gas and is investing heavily to build new processing facilities on the Gulf Coast. Dow
executives say that natural gas brings much bigger benefits as
a feedstock for the manufacturing and
petrochemical industries than as an
export.

"Maybe we should be careful, permit a few [export facilities], see how it goes," Mr.
Liveris said before the release of the study.

Dow Chemical Vice President George Biltz said Wednesday the
study failed to account for US manufacturers' growing use
of natural gas.

Environmentalists fear that allowing exports will encourage
more natural-gas production, which many oppose because they
fear that the hydraulic fracturing used to extract natural gas
could contaminate groundwater.

"It is baffling that this report omits the serious threats
increased fracking and gas production pose to our water, our
air, and the health of our families," said Michael Brune, the
executive director of the Sierra Club, which has spearheaded
opposition to new export terminals.

The study, conducted by NERA Economic Consulting, a
nonpartisan Washington, D.C., firm that is part of Marsh &
McLennan Cos., concluded that exports could raise the domestic
price of natural gas by between 22 cents and $1.11 per thousand
cubic feet within five years.

It said the figure would depend on several variables,
including the strength of demand from domestic manufacturers
and how many export terminals get built.

The NERA report found that exports would benefit gas producers
while slightly cutting into the real wages of workers, who
could see higher prices for electricity and manufactured goods.
"Impacts won't be positive for all groups in the economy," the
report found.

"It's clear from the study that exporting LNG would be
beneficial to the US economy, and the greater the level of
exports, the greater the benefit," said Sen. Lisa Murkowski
(R., Alaska), the top Republican on the Senate Energy and
Natural Resources Committee.

Rep. Ed Markey (D., Mass.), a critic of both fracking and
gas exports, said large-scale exports would lead to a "massive
wealth transfer from working Americans to oil and gas
companies."

The Wall Street Journal(via
Dow Jones Newswires)

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